How Much Higher Can the Canadian "Loonie" Soar Before Its Economy Gets Singed?

Booms — and the boom in Canadian commodities is no exception — are seldom without their unintended costs….[As the Canadian dollar appreciates versus the U.S. dollar, and with the U.S. as] its largest trading partner, falling Canadian exports could well induce a secular decline in the Canadian manufacturing base. Indeed, as the loonie soars, the inevitable question is: “How much higher before its economy gets singed?” Words: 528

So says Eric Schaefer in edited excerpts from his guest article* posted at http://advisorperspectives.com/ entitled A Look At Our Neighbor To The North.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below to some degree for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.

Schaefer goes on to say, in part:

Bond, equity and currency movements over the last decade in Canada reflect the extent of the oil (and timber, iron ore, nickel, gold, silver and wheat among other commodities Canada has in abundance) boom there.

Canada’s Boom in Equities

Over the last decade, Canadian share prices (measured by the MSCI Canada Index) rose 14.1% per annum in US dollar terms. In contrast, the corresponding MSCI country index for the United States rose by a less spectacular 7.1% per annum. In part, the spread reflects the dominance of energy and basic materials companies on the Toronto exchange.

Canadian government debt has enjoyed a similar bull market. In the ten years ending October 2012, the Citigroup Canadian Government Bond Index advanced 10.6% per year measured in US dollars versus a 4.9% return for US Treasuries). There are a variety of reasons for this disparity. A key element is the Canadian fiscal picture. Along with Australia, Canada is one of the few developed, industrialized nations not confronting a fiscal crisis from rising government debt. Canadian federal government debt is approximately 33% of nominal gross domestic product (GDP). In comparison, US Treasury debt now exceeds 100% of US nominal GDP. In a world tiring of ongoing and unresolved debt crises, Canada merits only positive headlines in the financial press.

Canada’s Boom in the Appreciation of the “Loonie”

These factors explain the steady appreciation in the Canadian dollar (or, the “loonie” among currency traders) versus the US dollar. Ten years ago one US dollar bought 1.58 Canadian dollars; today, it only buys one Canadian dollar. This flip in the relative values of the two currencies is mirrored in cross-border shopping excursions. A soaring loonie has spurred Canadian day trippers to head south to the United States in search of bargains.

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The Costs of the Boom

Booms — and this one is no exception — are seldom without their costs….[As the Canadian dollar appreciates versus the U.S. dollar, and with the U.S. as] its largest trading partner, falling Canadian exports could well induce a secular decline in the Canadian manufacturing base. [A good example of the unattended costs of the oil (and, commodity) boom can be seen in the ongoing negotiations between GM and Chrysler and the Canadian Auto Workers (CAW) union illustrate. Without significant changes in shop floor practices and a re-structuring of wage scales, both auto makers are threatening to shift production from Ontario back to the United States. Between them, the three automakers (including Ford) employ more than 21,000 Canadian workers.

As the loonie soars, the inevitable question is: “How much higher before its economy is singed?”

Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

<img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2012/11/loonie-90×65.jpg” alt=”loonie” title=”loonie” />The International Monetary Fund said today that it is considering classifying Canada’s dollar, nicknamed the loonie for the image of a loon on the C$1 coin, and Australia’s dollar, as reserve currencies. Words: 285

<img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2009/10/commodities.jpg” alt=”commodities” title=”commodities” />Canada has the 7th largest economy in the world and is the 2nd largest country by land mass. It has a wealth of natural resources, making it a large energy and minerals exporter. For commodity traders looking to invest primarily in North America, Canada presents a compelling opportunity. [This article takes a look at Canada’s top commodity exports and imports and offers suggestions as how to invest in Canada’s commodity industry.] Words: 905

<img src=”http://www.munknee.com/wp-content/themes/Transcript/images/thumbs/archive.jpg” alt=”” />The following charts come straight from the Canadian Association of Petroleum Producers in an attempt to put the benefits and impact of Alberta, Canada’s oil sands into proper perspective from their point of view. Take a look and I think you will be favourably impressed. Words: 540

<img title=”521Billion_button” src=”http://www.munknee.com/wp-content/uploads/2012/05/521Billion_button-90×65.jpg” alt=”521Billion_button” width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2012/05/521Billion_button-90×65.jpg” data-lazy-type=”image” /><img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2012/05/521Billion_button-90×65.jpg” alt=”521Billion_button” title=”521Billion_button” />Canada is the largest supplier of oil to the U.S. When the U.S. imports oil from Canada, the spin-off economic benefits are substantial. The interactive map of the U.S. below will let you calculate the economic impact generated in each U.S. state from new oil sands projects in Alberta, Canada. Words: 592

<img title=”oil sands” src=”http://www.munknee.com/wp-content/uploads/2012/05/oil-sands-90×65.jpg” alt=”oil sands” width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2012/05/oil-sands-90×65.jpg” data-lazy-type=”image” /><img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2012/05/oil-sands-90×65.jpg” alt=”oil sands” title=”oil sands” />The third largest source of oil in the world is the Canadian oil sands and the United States already imports more of it from there than from anywhere else. With oil prices on the rise, the controversial oil sands are likely to become even more economically viable, despite experts’ warnings about environmental risks [and the political and environmental gamesmanship to block the Keystone pipeline project from there to refining facilities in the U.S.]. Below are 12 incredible facts about the oil sands. Words: 408

<img title=”OIL” src=”http://www.munknee.com/wp-content/uploads/2009/10/OIL.jpg” alt=”OIL” width=”46″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2009/10/OIL.jpg” data-lazy-type=”image” /><img width=”46″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2009/10/OIL.jpg” alt=”OIL” title=”OIL” />The oil sands in northern Alberta are crucially important to the Canadian economy. People from all over the country are traveling there to find work. The news is filled with controversy over proposed pipelines (the Keystone XL and the Northern Gateway) to carry the oil to export markets. Here are 10 things everyone should know about the oil sands. Words: 878

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